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What ‘experts’ generated this scheme?

Despite awarding £2.8bn in subsidies to power companies the government’s scheme to ensure a secure energy supply for businesses & households in the UK is failing, according to a new report published by IPPR. The report says the government’s ‘capacity market’ – an annual auction to guarantee energy supply (which was introduced in 2014) – is providing poor value for money for bill-payers, cuts across plans to reduce carbon emissions and is too focused on large power stations at the expense of more efficient & flexible ‘demand management’ technologies.

Describing the current design of the capacity market as ‘not fit for purpose’, the report argues that the scheme needs fundamental reform. It recommends:

Splitting the scheme into two separate auctions for old and new generation capacity

Introducing an emissions performance standard that excludes the most polluting plants from the scheme

Levelling the playing field for technologies that can reduce demand at peak times.

The report finds that the current scheme is handing windfall payments to power stations that would be highly likely to be online anyway. While in the 2014 auction, a third of contracts were awarded to plants which had indicated that they did not need subsidy to stay online.

Finally, the report shows that the capacity market is preventing the UK from moving to a more flexible & efficient system in which electricity demand is actively managed at peak times to avoid the need for new supply. In a report earlier this month the National Infrastructure Commission estimated that new demand management technologies could save bill payers £8bn a year by 2030.